Here's Why You Need so Much Paperwork to Get a Mortgage

"I need give you ALL of this information, just to get a mortgage?!"

You’re thinking about buying a house and you’ve taken the FIRST step, by talking to a lender to get pre approved for a mortgage. You sit down and it quickly find out you’re going to need to provide them with what seems like a TON of papers and information about yourself, just to start the process. But why is this?

You’ll start to hear from your parents of grandparents how EASY it was to get a mortgage when they bought their home many years ago, but it’s not the case anymore, and here’s why:

Government guidelines

Our government has set strict guidelines that demand the bank to PROVE that without a doubt, the home buyer is capable of paying the mortgage. During a ramp-up in the housing market, there were a ton of home buyers “qualified” for a mortgage, that they could never pay back. Have you seen the movie The Big Short? I recall the scene when they’re talking to the lenders in Florida who are making a TON of money, because they are just hand out loans without any sort of recall. It’s not the case anymore, because it led to millions of families losing their homes, and the government wants to make sure this can’t happen again.

Banks don’t want to be wrapped up in Real Estate

If you can’t pay your mortgage, then the bank is forced to take on the responsibility of the foreclosure. And- they’re banks, they’re not in the real estate business. Over the last seven years, banks were forced to take on millions of foreclosures, negotiating another million short sales, and this is what they DON’T want. So now, they’re making EXTRA sure they don’t fall into this again.

The good news

There is some good news about the strict guidelines. Because the housing crash forced banks to be extremely strict on paperwork requirements, it’s allowed home buyers to get interest rates below 4% because the banks feel confident about lending the money. Sure, your parents and grandparents had an easy process to get their mortgage, but they also had higher interest rates (the average 30 year fixed rate mortgage was 8.12% in the 90’s and 6.29% in the 2000’s).

Although the paperwork is taxing, let’s just be thankful we’re able to buy a home at such historic lows!